Your age, income, and credit history are not the most important factors in getting approved for a home mortgage. There are many myths and misconceptions about home mortgages, especially from first-time homebuyers who haven’t been through the process before. This article will debunk some of the common myths about home mortgages so you can get an accurate idea of what’s realistic and what’s not when buying your first home or refinancing your current one.
1: You need perfect credit to get a home mortgage
Home mortgages are available to people with a wide range of credit scores. It’s true that you’ll generally get the best rates if you have good credit, but there are also options for those who have less-than-perfect scores. Talk to your lender about which kind of mortgage might be right for you.
2: Mortgage rates are set by the government
Mortgage rates are set by the government, which is why they change so frequently. The federal funds rate is based on how well the economy is doing, and how much inflation there is. If inflation is high, the Federal Reserve will raise rates to combat that. If the economy isn’t doing as well as it should be, the Fed will lower rates to try and stimulate it.
3: Only banks can give you a home mortgage
If you’re not a bank, then you’re out of luck, right? Wrong. A lot of people believe that only banks can give mortgages, but this is a myth. There are many different lenders who specialize in mortgages, so there’s no need to be discouraged by this false information. As long as you have the down payment and strong credit history required for the loan, then you’re eligible to apply for it.
4: All mortgages are the same
A mortgage is a loan that you take out to buy a house. When you’re buying, it’s important to know what type of mortgage will work best for your needs. There are two basic types: an adjustable-rate mortgage and a fixed-rate mortgage. With an adjustable rate, the interest rate will change over time with the market, so your monthly payments could change in response. With a fixed-rate loan, you’ll know what your monthly payment will be for the life of the loan.
5: The bank will always give you the best deal
One of the most common myths about mortgages is that banks will always give you the best deal. Unfortunately, this is not true. Banks are in the business of making money and will want to sell you a loan at an interest rate that’s profitable for them. And, since they’re less expensive than other lenders, it’s easy to believe that they’ll always be your best option. However, there may be better deals out there – especially if you shop around or use a mortgage broker to help you find one.
6: Pre-approval means you’re guaranteed a loan
A pre-approval letter from a bank is not an automatic guarantee for a mortgage. The pre-approval process is simply a review of your financial history and credit report to see if you qualify for the type of loan you’re looking for. It doesn’t mean that they will give it to you, or even offer the best rates.
7: You should only get a 30-year home mortgage
It’s true that 30-year mortgages are the most common type of home loan, but that doesn’t mean you should only get one. In fact, depending on your financial situation and goals, getting a 15- or 20-year mortgage might be the best option for you.
8: You need 20% down to buy a home
It is possible to purchase a home with as little as 3.5% down, also known as an FHA loan. These loans are backed by the government, making them a safe investment for first-time homebuyers. With this option, buyers are not required to have any money of their own up front when purchasing a property – all they need is a steady income and a good credit score. The downside of these types of mortgages is that monthly payments will be higher because the mortgage does not cover 100% of the cost of your new house – you still need to come up with closing costs and other expenses on top of your monthly payment.
9: Private mortgage insurance is a waste of money
Private mortgage insurance is a waste of money because it doesn’t protect you from anything. PMI covers the lender in case you default on your payments, not you. The lender will get their money and you’ll still be stuck with a house that’s worth less than what you owe on it. So, when the private mortgage insurance company says they’ll cover all of your costs if something bad happens, they really mean that they’re covering themselves and not you.
10: Once you have a home mortgage, you’re stuck with it
Once you have a mortgage, you’re stuck with it. Unless you want to go through the trouble of refinancing your home loan, it’s probably best not to move any time soon. But that doesn’t mean there are no other options. For example, if your financial situation has changed dramatically and your home doesn’t suit your needs anymore, you can cash out your equity by taking out a home equity line of credit or a reverse mortgage.